China strengthens social credit system for financial market

The Shanghai Stock Exchange trading room in Shanghai Photo: CFP

China on Tuesday released a document on building a high-quality social credit system, with the aim of promoting the efficiency of the connection between supply and demand, optimizing the allocation of resources and build a healthy business environment.
The document includes regulations to guide the financial market. For example, China will follow the principle of strict supervision, investigate and prosecute serious cases of fraudulent stock issuance, misrepresentation, market manipulation and insider trading.
The role of credit will fully play its role in the identification, monitoring, management and elimination of financial risks.
Meanwhile, China will improve market exit mechanisms and explore a mandatory delisting system. Insolvent companies may be subject to receivership or liquidation in accordance with the law.
Mandatory delisting rules will be strictly enforced to establish a virtuous circle of “survival of the fittest” for listed companies. China will also consolidate responsibility for information disclosure of relevant subjects and improve market transparency, the document read.
Strict implementation of delisting rules will accelerate the elimination of shell and low-quality companies, which will improve the capital market environment, said Wang Peng, assistant professor at the University’s Gaoling School of Artificial Intelligence. Renmin from China. Global Times on Tuesday.
The document clarified the credit system in relation to scientific research; protection of intellectual property rights; cooperation and connection with international credit systems; the promotion of finance at the service of the real economy through the credit system, and the methods of supervision and implementation.
It is a high-level conception of China’s credit system construction, which defines the scope of the credit system and stipulates the rights, responsibilities and obligations of relevant subjects, Wang said.
According to the document, China will explore credit concepts and methods to resolve difficulties that restrict economic activities.
For example, China will promote the use of credit tools to unlock consumption potential in medical care, elderly care, housekeeping, tourism, shopping and other fields.
“The construction of the social credit system is conducive to improving the efficiency of economic and social operations and plays a supportive role in economic recovery and development,” Wang said.
China’s securities regulator has revised the delisting mechanism for listed companies, in effect since July 2018.
In January 2021, China’s two major stock exchanges – the Shanghai Stock Exchange and the Shenzhen Stock Exchange – issued revised delisting rules as part of a zero-tolerance approach for the world’s second-largest stock market, after a solicitation of public opinion for a month.
As a result, the number of companies delisted from 2019 to 2021, excluding mergers by absorption, stood at 10, 16 and 20 respectively.
The number of companies delisted in those three years accounted for 31 percent of the total number of companies delisted in the A-share market, according to an analysis by Haitong Securities.
China is committed to strengthening bilateral international investment and building credit for international cooperation, which includes implementing the foreign investment law, improving the negative list system, and protecting the rights and legitimate interests of foreign investment.
China will intensify international cooperation in intellectual property protection and maintain and enhance its attractiveness for foreign investment.
In addition, China will actively participate in international credit governance. It will implement multilateral and bilateral economic and trade agreements with other countries and push forward the revision of laws and regulations in line with the requirements of greater openness and China’s needs.
“The construction of the social credit system must be integrated with digitization and intelligence in the future. Technical security is very important because the provision of business services, personal services and government services requires big data risk control and credit investigation, Wang said.

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